Ukraine attacks pressure point in Russia’s economy

Ukraine’s drone attacks on Russia’s biggest online retailer Wildberries have ratcheted up the pressure on Moscow’s wartime economy, with Kyiv seeking to force President Vladimir Putin back to the negotiating table after nearly four-and-a-half years of war.

Ukraine has been targeting major logistics centers, such as Russia’s Amazon-style retail giant, as part of a push to severely disrupt the country’s supply chains and increase the financial burden facing Russian banks and businesses.

It marks a significant change in approach for Ukrainian forces, following months of long-range drone strikes targeting Russian energy infrastructure.

Wildberries evacuated a warehouse in the central Russian city of Ryazan on Wednesday morning, the company said, after Ukrainian drones struck several industrial facilities.

The Russian government has acknowledged it may need to prop up Wildberries, Reuters reported Tuesday, citing two unnamed sources, with state-controlled bank VTB expected to play a key role. Russia’s Foreign Ministry was not immediately available to comment when contacted by CNBC.

Since Russia launched its full-scale invasion of Ukraine in early 2022, Russian businesses have faced numerous disruptions due to the war, according to Natalya Kovaleva, a researcher in the Russia and Eurasia program at Chatham House.

“Western sanctions fractured supply chains. Tax increases squeezed margins. Internet blackouts disrupted operations. And recent fuel shortages drove up costs while adding to inflationary pressures,” Kovaleva said Tuesday in an online post.

“Russia’s business owners have largely absorbed these shocks. But Ukrainian strikes on Wildberries present a significant new development, reflecting Kyiv’s broader effort to ratchet up economic pressure on business and ordinary Russians.”

Kovaleva said Ukraine’s hope is that by raising the cost of war for Russian businesses, internal opposition will mount and Putin may be forced to the negotiating table — or at least halt his bombardment of Ukraine’s cities.

“It remains to be seen if this strategy will have the desired effect. Even as it becomes even harder to do business in Russia, the country’s elites appear more dependent on – and wary of – the Kremlin [than] ever before,” Kovaleva said.

Ukrainian President Volodymyr Zelenskyy has said that warehouses targeted by Ukrainian drones were involved in providing Russian forces with drone components, navigation equipment and other military components.

Wildberries is Russia’s biggest online retailer and its equivalent to U.S. e-commerce giant Amazon. Founded in 2004, the company currently employs about 48,000 people.

Zelenskyy said Tuesday that he had discussed licenses for Patriot interceptor production and the importance of reinvigorating the diplomatic process during what he described as a “good meeting” with U.S. President Donald Trump at the Oval Office.

The meeting took place at a time when the U.S war against Iran and Russia’s full-scale invasion of Ukraine have both reached critical junctures. Trump has paused airstrikes against Iran as part of a push to give diplomacy another chance, while Zelenskyy has been galvanized by a flurry of deep-strike successes on Russian territory.

The Trump-Zelenskyy meeting also coincided with a renewed congressional push to tighten sanctions on Moscow, with legislation championed by the late Sen. Lindsey Graham passing its first Senate hurdle.

“The Russian economy has stalled,” Elina Ribakova, senior fellow at Peterson Institute for International Economics, told CNBC’s “Europe Early Edition” on Wednesday.

“It will have growth of zero percent this year — at best, we have seen contraction of the economy in the first quarter and industrial output contraction as well. Industrial output contraction means that also the defense sector has decelerated meaningfully. So, Russia is vulnerable.”

Ribakova said Russian energy sanctions legislation had the potential to be “extremely impactful” to Putin’s wartime economy, particularly at a time when the Russia and Iran conflicts appear to be converging.

Kyiv on Saturday launched an attack on an Iranian commercial vessel in the Caspian Sea, an incident which Tehran said left one sailor dead and injured several others. The Islamic Republic has threatened retaliation over the strike.

“What is giving it a boost is again this connection with Iran,” Ribakova said. The fact that Iran is able to close the Strait of Hormuz is boosting oil prices and, of course, giving Russia another way to continue fighting in Ukraine, she added.